Avoid Franklin (BEN), Buy These 3 Investment Managers Instead

Franklin Resources’ BEN shares have dropped 25.9% in the past year compared with the industry’s decline of around 2%, on rising investors’ concerns due to persistent net outflows recorded by the company.

Investment management fees have been Franklin’s biggest source of revenues, comprising about 68%, for the past few years. Notably, during fiscals 2016 and 2017, fees declined due to reduction in average assets under management (AUM) and lower effective fee rate, which remain concerns.

ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. The ROE for the trailing 12-month period is 15.4% for Franklin as compared with the S&P 500 average of 17.44%. Thus, this investment manager reinvests its earnings inefficiently, which might drag it to a relatively disadvantageous position.

Further, Franklin has been witnessing downward estimate revisions, of late. The Zacks Consensus Estimate for earnings of $3.14 for fiscal 2018 declined around 1% over the last 60 days. For fiscal 2019, it moved down 3.7% to $3.11 during the same time frame. Notably, the company witnessed historical (3-5 years) earnings per share negative growth of 4.4% compared with nearly positive growth of 4.1% for the industry.

The stock currently carries a Zacks Rank #4 (Sell), with an unimpressive Momentum Score of D. Our research shows that stocks with a Momentum Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best upside potential. Hence, the stock does not look promising at present.

Picking Favorable Investment Management Stocks

While Franklin doesn’t appear to be an attractive pick right now, there are a few asset managers which have a better Zacks Rank and Momentum Score. Also, these companies have performed well as compared with the industry’s decline over the past year.

Lazard Ltd LAZ carries a Zacks Rank of 2 and has a Momentum Score of B. Further, earnings for the company for 2018 are projected to increase 21.2% year over year. Over the past year, the company’s shares have gained 12.5%.

Noah Holdings Ltd. NOAH has a Zacks Rank #2 and Momentum Score of A. In addition, the Zacks Consensus Estimate is pinned at $2.45 for 2018, reflecting a year-over-year increase of 8.9%. Also, shares of the company have jumped 36.6% in a year’s time.

Carrying a Zacks Rank #2 and a Momentum Score of A, Prospect Capital Corporation’s PSEC current fiscal earnings are expected to be up 7.6% year over year. Moreover, over the past year, the stock has rallied 9.5%.

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